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Lack of government intervention risks Ghana’s energy debt rising to $12.5 billion by 2023

Ghana is facing a potential economic crisis fuelled by mounting energy sector debt that could rise by 400% to $12.5 billion by 2023 should the government not undertake concrete steps to rein it.

Government nominee for Minister of Energy Matthew Opoku Prempeh while addressing lawmakers during a cabinet vetting session on February 12, attributed the debt’s surge to failure by the power distribution company to collect all the money for the energy it sells.

The debt owed to fuel suppliers and energy producers was estimated at $2.7 billion in January 2019, the ministry said in its energy sector recovery program report. That was after the government introduced energy bond sales in 2017 to help clear the debt.

“We don’t collect enough revenue to meet our requirements,” Prempeh said. “We’re going to sit down with all the players and let them understand that if we don’t change and agree on some parameters we’ll all collapse.”

Prempeh said if confirmed to the post, he’ll seek relief through ongoing renegotiation of power contracts with private power producers and will consider a different approach to privatizing the state power distribution company, Electricity Company of Ghana.

Previous attempts to do so in 2019 through a U.S.-funded aid program fell through.

Since the renegotiation of the power deals began in 2019, three of the 12 independent producers have agreed to take steps to cut their tariffs charged to the government, however, none have agreed to stop charging the government for energy it does not consume. Those obligations, under so-called take-or-pay clauses, cost the government $500 million every year.

In an effort to solve a power crisis between 2013 and 2015, Ghana awarded lucrative contracts to private producers to set up power plants, which drove supply to over 4,600 megawatts, well above national peak demand of 2,700 megawatts.

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